SINGAPORE (Nov 27): Singapore’s economy is starting to see some “green shoots” that could bring a glimmer of hope amid negative non-oil domestic export (NODX) figures and slow growth, says Selena Ling, chief economist at Oversea-Chinese Banking Corp (OCBC Bank).
Ling, who also heads the bank’s treasury research and strategy department, notes that Singapore’s electronics manufacturing sector is showing signs of bottoming out.
Electronics shipments fell by 16.4% in October, compared to a 24.9% drop in September, which translated into a 0.4% increase in the electronics output between September and October.
With manufacturing and trade amounting to three times the size of Singapore’s gross domestic product (GDP), a growth in these areas could spell good news for the city state, Ling tells reporters at OCBC’s 2020 outlook briefing on Nov 26.
Even so, she warns that the dent on manufacturing may have a contagion effect on the services sector, even if the trade war subsides and tariffs do not escalate further.
For now, it is still unclear how the services and manufacturing sectors will perform going forward, given the ambiguity around the US-China trade war. More clarity is expected after the superpowers hold their Phase 1 trade talks, scheduled for Dec 15, 2019.
“At first, it was meant to speak about [the superpowers] not having new tariffs, then China asked for a roll back. Now the US has responded by asking China to [adhere to] intellectual property requirement,” says Terrance Wu, OCBC’s foreign exchange specialist, at the same event.
Noting a change in the countries’ stance on the talks, Wu points outs that the stretching of the Phase 1 deal is affecting the progress of the trade war.
In this light Ling says the bank’s baseline scenario is that the Phase 1 deal will get signed.
However, she says this is “a very low-lying fruit,” and adds that China will need to prove its willingness to make some concessions to the US.
Given the International Monetary Fund’s (IMF) cut in its global growth forecast to 3% in 2019 and 3.4% in 2020 – the fifth cut for the year – OCBC has a muted outlook on global economic growth.
Even if the trade war concludes, Ling believes there may still be a slowdown.
First, she points out that Elizabeth Warren – the likely Republican Candidate for next year’s US election – is a proponent of “economic patriotism”, which could mean an even harder stance on protectionism.
Secondly, Ling notes that an ageing population worldwide has been slowing productivity growth across major economies.
To this end, Ling predicts that Singapore’s close shave from a technical recession in the third quarter, will see it achieving 4Q growth of 0.7% and a full-year growth of 0.6% year-on-year.
Going forward, the analyst is looking at GDP growth of 1-2% and NODX growth of 2-4%. These forecasts are given the low base effects from 2019, and assumes that trade tensions do not escalate further.
Driving the growth, she notes, will be green shoots in the areas of construction, finance and insurance, information communications, education, and health and social services.
However, Ling warns that the labour market may continue to soften in 2020. Resident unemployment hit 3.2% in 3QFY2019 – the highest level in the past two years. This comes on the back of the uptake in retrenchments of professionals, managers, executives and technicians (PMETs), whose jobs are being disrupted.
Ling says Singapore is expected to have the largest disruption in its workforce and the fastest digital transformation in Asean. And so, she suggests a major upskilling or reskilling for the labour force to stay relevant.
With Budget 2020 being christened as the “election budget”, Ling expects more targeted handouts for lower-income households and workers. This, she says, is unlike the typical Goods and Services Tax (GST) rebate cash handouts that were handed out in prior to the previous elections.
She is also looking at more assistance to displaced workers and small and medium enterprises to help them tide the challenging slow growth domestically and globally.
